In music industry parlance, the “360 deal” is a type of record contract that emerged over the past decade in which the record label takes a cut of live music ticketing and merchandise sales as well as recorded music revenues. Spotify, the streaming music provider that’s grown popular in Europe while U.S. music fans await its arrival, is aiming to do something similar in the online sphere: provide a channel for downloads, ticketing, merchandise, direct-to-fan marketing and communications, in addition to streams.
Speaking at yesterday’s New Music Seminar in Los Angeles, Spotify chief executive Daniel Ek said the company’s much-anticipated, much-delayed U.S. launch is “looking pretty good,” but might still be a few months off. In a subsequent offstage interview with Billboard’s Glenn Peoples, Ek said the company is having extensive conversations with artists and managers as well as labels in order to build a platform that delivers multifold music services: a way to follow an artist as you might on Facebook or Twitter, find live shows, buy downloads as well as music in physical form — vinyl, even — and pay for whatever else the artist offers online.
The logic is similar to what the labels attempted with 360 deals: If you can’t make ends meet on music alone, grab a piece of something else for which people are willing to pay. In the case of Spotify, those ancillary revenues would come from both free users and paid subscribers, and would take some pressure off its need to drive up its free-to-paid conversion rate (currently around 3.6 percent) — a need that stems from its yet-unproven freemium model. Spotify has already partnered with 7digital for download sales in Europe, adding an additional revenue stream beyond subscriptions and advertising on its free service, and is likely to offer at least a paid download store upon its U.S. launch.
Can Spotify convince consumers that it’s a place to open their wallets to buy something, and not just a music-listening app? It may be a matter of perception, first and foremost. Many companies have tried similar strategies, and the track record for crossover success isn’t all that encouraging: MySpace, for example, failed to capitalize on its integration of music-selling widget Snocap, primarily because consumers never saw MySpace as a store. In the Billboard interview, Ek spoke of educating consumers, and acknowledged that Spotify is still in the early stages of experimentation with wider-ranging functions beyond streaming music.
Becoming an all-inclusive online music service is a suitably ambitious goal for a company whose valuation has flown high during a period when other digital music startups have produced lukewarm and negative exits. Ek didn’t say whether Spotify intends to partner with existing companies to add more services and capabilities, or whether it would build its own, and it may be a while before all the pieces are in place. But it’s a sign that the young company is prepared to address the music industry as something broader than the record industry — an important distinction even for an innovative cloud-based streaming music startup.